Is Market Correcting, Or Just Hitting Bumps?

June 17, 1998|By MATTHEW LUBANKO; Courant Staff Writer

The bull has started to run south, and market analysts have begun to ask: Is it over?

The numbers that spell out the Dow Jones average of 30 industrials tell part of the story -- and underscore some of the prevailing fears. Although the Dow rose 37.36 points Tuesday, to 8,665.29, the index has fallen 6.8 percent -- about 546 points -- since its May 13 all-time high of 9,211.84.

Market optimists say the Dow's two-week decline is just part of a bumpy ride to higher ground. They mention low inflation, low unemployment, low interest rates and steady growth in corporate profits as reasons for believing the bull will continue its run. This is the economy that Federal Reserve Chairman Alan Greenspan branded last week as the best in 50 years.

But certain bellwethers have come under assault in recent weeks.

Stocks that make up the S&P 500 -- a price- weighted index -- have fallen 16 percent, on average, from their 52-week highs. Nasdaq stocks are down 23 percent from their highs.

And 56 percent of the stocks traded on the New York Stock Exchange have fallen 15 percent or more, according to an A.G. Edwards & Sons survey.

Initial public offerings also have suffered since May.

``Anything that's not related to the Internet is suspect with investors,'' said William K. Smith, president and head of equity research at Renaissance Capital Corp., a Greenwich firm that specializes in newly issued stocks.

Of the 34 companies that went public in May, 15 started trading beneath their offering prices. ``We haven't seen conditions like this in a while,'' Smith said.

Analysts followed by the market tracking company First Call Corp. predict that corporate profits will grow 6 percent in the second quarter this year after growing just 3.8 percent in the first quarter.

If First Call's forecast holds true, then this would mark the first time since late 1991 that corporate earnings came in below 10 percent for two consecutive quarters.

Some economies in east Asia -- once called the ``tigers'' -- are weaker than newborn kittens and bordering on insolvency.

India and Pakistan exploded nuclear bombs, reminding the world that the dreaded nuclear edge hasn't disappeared with the demise of the Soviet Union.

And Russia, the capitalist byproduct of communism's collapse, has found that free markets can be as harsh as they are efficient, said Jim Griffin, investment strategist at Aeltus Investment Management Inc. in Hartford.

``Even if you're an optimist, it's pretty hard to feel good about what's happened to stocks recently,'' said Griffin, a self-proclaimed bull.

Alfred E. Goldman, technical market analyst with A.G. Edwards & Sons in St. Louis, said he has seen bear markets before, and this isn't one of them.

In the bear market of 1973-74, Coca-Cola Co. lost 40 percent of its value while delivering 15 percent growth in earnings, and oil prices rose sevenfold in 18 months.

The Asian economies will depress earnings for some companies, to be sure, Goldman said. Those most affected by the Asian flu will be oil, paper, chemical and manufacturing companies, Goldman said.

``But the Asian miracle is not dead,'' Goldman said. `It's just going on strike for a few years.''